Using the Spot and Forward Markets to Borrow at the Implied

question 6

Multiple Choice

Using the spot and forward markets to borrow at the implied repo rate entails

• A)Selling the spot asset and buying it forward.
• B)Buying the spot asset and selling it forward.
• C)Selling the spot today and buying it back at the then-prevailing spot price in the future.
• D)Buying the spot today and selling it at the then-prevailing spot price in the future.

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Definitions:

General Partner

An owner of a partnership who has unlimited liability and is active in managing the firm, as opposed to a limited partner with limited liability.

Secondary Market

The market where investors buy and sell securities they already own, as opposed to the primary market where securities are first issued.

Foreign Exchange Market

A global marketplace for trading national currencies against one another.

Debt Market

A financial market where participants can issue and trade debt securities, often used by corporations and governments to finance their operations.